VAR Stress and Back Testing using Excel

alkash.ghai
Posts: 6
Joined: Tue Mar 25, 2014 4:42 pm

VAR , Stress and Back Testing using Excel

Can anyone explain VAR , Stress and Back testing taking an practical example in an excel sheet. The calculation OF VAR and difference between each test with an example ?

Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

VAR , Stress and Back Testing using Excel

In financial mathematics and financial risk management, value at risk (VaR) is a widely used risk measure of the risk of loss on a specific portfolio of financial assets. For a given portfolio, probability and time horizon, VaR is defined as a threshold value such that the probability that the mark-to-market loss on the portfolio over the given time horizon exceeds this value (assuming normal markets and no trading in the portfolio) is the given probability level.

tress testing (sometimes called torture testing) is a form of deliberately intense or thorough testing used to determine the stability of a given system or entity. It involves testing beyond normal operational capacity, often to a breaking point, in order to observe the results. Reasons can include:
to determine breaking points or safe usage limits
to confirm intended specifications are being met
to determine modes of failure (how exactly a system fails)
to test stable operation of a part or system outside standard usage